Consumer Finance Monitor

Our podcast today focuses on negative option consumer contracts, i.e., agreements that allow a seller to assume a customer’s silence is an acceptance of an offer. Such contracts are ubiquitous in today’s marketplace. Today’s guests are Kaitlin Caruso, a professor at the University of Maine Law School, and Prentiss Cox, a professor at the University of Minnesota Law School. They have written an article entitled, “Silence as Consumer Consent: Global Regulation of Negative Option Contracts.” The article is available on SSRN and will soon be published in the American University Law Review. The Professors first describe what they perceive to be some of the consumer harms resulting from the use of negative option contracts – consumers signing up for “free trial” offers that convert to term contracts requiring consumers to pay periodic fees after the free trial period has expired; credit card “add-on” products which are sold through telemarketing, like credit life and disability insurance; subscription contracts which make it difficult for consumers to cancel; subscription contracts for services, which are not used for lengthy periods of time while the consumer continues to pay periodic fees. The Professors then describe the existing federal and state statutes and FTC regulations and why they are inadequate to protect consumers. They point out that the current FTC negative option rule was promulgated decades before the development of the Internet and obviously does not begin to deal with online sales of goods and services. Instead, the FTC rule is intended to deal with mail order sales like the “Book-of-the-Month” club. While the FTC has proposed a new negative option rule which is a vast improvement over the existing FTC rule, it is unclear when or if a final rule will be promulgated. The Professors also describe the federal Restore Online Shoppers Confidence Act, and the FTC‘s Telemarketing Sales Rule which tangentially pertain to negative option contracts. Finally, the professors discuss a patchwork quilt of state laws (mostly part of state UDAP statutes) which deal with negative option contracts. After surveying the existing federal and state laws, as well as negative option laws enacted in many foreign countries, the Professors describe the core elements of what a negative option law (be it state or federal) should contain in order to protect consumers. The core elements are: 1.  A prohibition against converting a “free trial” offer into a term contract; 2. A prohibition against automatically converting a negative option contract into another term contract with the contract instead becoming a month-to- month contract.  Alternatively, the negative option contract could convert to a term contract, which could then be canceled during the first 90 days after the consumer sees a charge on a credit card statement. 3. If a subscription to services is not used by the consumer for at least one year, then the seller must notify the consumer of the dormancy, and if the service remains dormant for another three months thereafter, then the seller must cease charging the consumer for the service.  Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, hosts today’s episode.

Judge Daniel Domenico, a Federal District Court judge for the District of Colorado, lends his expertise to a crucial discussion on interstate usury parity. He delves into the landmark opinion on Colorado's opt-out legislation for interstate loans. The conversation examines the historical context of interest rate exportation between state-chartered and national banks. Domenico also discusses recent court challenges, the implications of the Depository Institutions Deregulation and Monetary Control Act, and how these developments shape the banking landscape.

Regulatory bodies are tightening their grip on bank partnerships with fintechs. Insightful discussions highlight the potential risks and benefits of these collaborations, emphasizing the need for strategic compliance. Experts delve into the various structures of bank-fintech partnerships, exploring implications for consumer safety and accountability. Navigating the regulatory landscape requires banks to adopt robust legal strategies and proactive monitoring. Continuous due diligence is essential for managing risks in this rapidly evolving financial environment.

On June 28, in Loper Bright v. Raimondo, et al., the Supreme Court overturned the Chevron deference doctrine, a long-standing tenet of administrative law established in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine directed courts to defer to a government agency’s interpretation of ambiguous statutory language as long as the interpretation was reasonable. However, legal scholars now express widely divergent views as to the scope and likely effects of Loper Bright’s overruling of the Chevron doctrine on the future course of regulatory agency interpretive and enforcement authority. In this two-part episode, which repurposes a recent webinar, a panel of experts delves into the Loper Bright decision, and its underpinnings, rationale, and likely fallout. Our podcast features moderator Alan Kaplinsky, Senior Counsel and former practice leader of Ballard Spahr’s Consumer Financial Services Group; Ballard Spahr Partners Richard Andreano, Jr. and John Culhane, Jr.; and special guests Craig Green, Charles Klein Professor of Law and Government at Temple University Beasley School of Law, and Kent Barnett, recently appointed Dean of the Moritz College of Law at The Ohio State University. Part II opens with an in-depth discussion of the major questions doctrine (which bars agencies from resolving questions of great economic and political significance without clear statutory authority), how it has evolved, and its interaction with Chevron deference. Our experts offer predictions as to the likely role of the major questions doctrine in post-Chevron jurisprudence, and touch on the non-delegation doctrine (which prevents Congress from delegating legislative power). We also refer to the effects of another recent Supreme Court decision, Corner Post, Inc. v Board of Governors of the Federal Reserve System, which expands the time during which entities new to an industry may challenge longstanding agency rules. We then consider the practical effects of the Loper Bright and Corner Post decisions on pending and future litigation. Partners Richard Andreano and John Culhane discuss concrete examples of cases currently progressing through the courts that already are evidencing the effects of Loper Bright, and ways in which arguments now are being articulated or might be articulated in litigation challenging a number of regulatory rules and interpretations in the absence of Chevron deference. We proceed to explore other significant topics including the validity of prior decisions of the Supreme Court and lower courts that were based exclusively on the Chevron doctrine. Our panel then opines on whether Loper Bright, both in its entirety and as to certain of its specific constituent elements, is “good” or “bad” for the consumer financial services industry and for regulated entities in general. In conclusion, Mr. Andreano cites concerns about how courts may apply alternative deference guidance that remains in place (including Skidmore deference, discussed in Part I of this podcast), and Mr. Culhane expresses hope that the outcome in Loper Bright might move agencies to engage in more thorough, thoughtful, and precise analysis in the rulemaking process.

On June 28, in Loper Bright v. Raimondo, et al., the Supreme Court overturned the Chevron deference doctrine, a long-standing tenet of administrative law established in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine directed courts to defer to a government agency’s interpretation of a statute if the statute was ambiguous regarding, or simply did not address, the issue before the court, as long as the interpretation was reasonable. However, legal scholars now express widely divergent views as to the scope and likely effects of Loper Bright’s overruling of the Chevron doctrine on the future course of regulatory agency interpretive and enforcement authority. In this two-part episode, which repurposes a recent webinar, a panel of experts delves into the Loper Bright decision, and its underpinnings, rationale, and likely fallout. Our podcast features moderator Alan Kaplinsky, Senior Counsel and former practice leader of Ballard Spahr’s Consumer Financial Services Group; Ballard Spahr Partners Richard Andreano, Jr. and John Culhane, Jr.; and special guests Craig Green, Charles Klein Professor of Law and Government at Temple University Beasley School of Law, and Kent Barnett, recently appointed Dean of the Moritz College of Law at The Ohio State University. In Part I, we first review the history of judicial deference to agency interpretations in American courts throughout the nineteenth and twentieth centuries, culminating in the advent of Chevron deference.  We then discuss post-Chevron developments, including shifts in judicial and political views of the role courts should play in interpretation of agency action. Then, we turn to an in-depth discussion of the majority opinion in Loper Bright, authored by Chief Justice Roberts, including its reliance on the Administrative Procedure Act to invalidate Chevron deference and the opinion’s numerous ambiguities that result in a “very, very fuzzy” outcome, leaving regulated industries facing uncertainty as to whether or not courts will uphold agency rules. We then explore other topics including the majority opinion’s endorsement of an approach courts should take to review agency actions as described in a 1940’s case, Skidmore v. Swift & Co.; what deference may or may not be given to agency policy-making and fact-finding in light of Loper Bright; and the divergent views of some legal scholars who suggest that many courts will continue to give broad deference to agency views notwithstanding Loper Bright.

The Supreme Court's decision in Cantero v. Bank of America leaves national bank preemption in a state of uncertainty. The discussion delves into the Dodd-Frank Act's standards and how they interact with state laws on mortgage escrow accounts. Recent rulings from the Ninth Circuit are scrutinized, revealing tensions between federal and state regulations. Additionally, arbitration provisions in consumer contracts are explored, emphasizing their role in shielding banks from class action lawsuits. Such complexities shape the evolving landscape of financial services and banking operations.

The CFPB recently issued yet another final rule the agency says will help deter violations of consumer protection laws. This rule requires certain nonbank entities to register with the CFPB upon becoming subject to any order from local, state, or federal agencies or courts involving consumer protection law violations. The registry rule applies to any supervised or non-supervised nonbank that engages in offering or providing a consumer financial product or service and any of its service provider affiliates unless excluded. The CFPB will require the nonbank entities that are subject to the rule to register the specific terms and conditions on an annual basis. There will be public access to this database. We also address the CFPB’s recent circular in which the agency stated that certain terms in consumer financial product or service contracts may constitute violations of consumer protection law. Notably, the circular states that the use of prefatory language that often appears in consumer contracts—such as “subject to applicable law” or “to the extent permitted by law”—will not immunize contract language from being deceptive. We explain why practically every consumer contract in use today technically violates the CFPB circular. We also explain how we are helping several clients review and revise their consumer contracts to comply with the circular. Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the discussion, and is joined by John Culhane, Richard Andreano, Joseph Schuster, and Reid Herlihy, partners in the Group.

A great number of fintechs are contemplating owning a bank or obtaining a banking charter—either a national bank charter, a state bank charter or a special purpose charter. In this episode, we are joined by our special guest Michele Alt, co-founder and partner of Klaros Group, an investment and advisory firm, and Scott Coleman, a partner in our Consumer Financial Services Group who leads our banking practice. Both Michele and Scott help banks and fintechs navigate the complicated regulatory issues that are critical to their growth and sustainability. We discuss the reasons why fintechs might want to become banks, and why regulators are reluctant to grant them charters. Alt says that a bank charter provides a fintech with low-cost funding in the form of FDIC-insured deposits and it eliminates the applicability of myriad state licensing requirements. On the other hand, she says, there are onerous capital requirements and regulators often are reluctant to embrace innovation. We discuss how some regulators fear that fintechs are fueled by growth over profits and how it could lead to lax management practices. Regulators have reason to be concerned about those risks, and if you charter a bank, you are responsible for it. Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the conversation.

The CFPB and state regulators and legislators have medical debt in their crosshairs. In this episode, we’re joined by Chris Eastman, CEO of the Pendrick Group, a Cerberus portfolio company that specializes in financial services solutions for healthcare companies. We discuss the differences between medical debt and other types of debt, as well as how states have been regulating medical debt including the collection of medical debt. Mr. Eastman discusses his company’s efforts to provide cash flows into hospitals and other healthcare providers that are operating at razor-thin margins. We also discuss the CFPB’s assertion that medical debt is less predictive than other sources of debt in determining the creditworthiness of a consumer. Mr. Eastman discusses how medical debt may be a valuable indicator when assessing the financial stress of a consumer. Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the conversation, and is joined by Joseph Schuster, a Partner in the group.

Rewards programs drive consumer choice and activity in connection with credit cards and other financial services. The CFPB has reported the most important element by far that influences a consumer’s decision to apply for a specific credit card is the rewards program associated with the card. Further, rewards can affect the consumer's choice at the point of sale as to which card to use. In this podcast episode, which repurposes a recent webinar, we explore recent trends in scrutiny of credit card rewards programs and other rewards programs by state and federal regulators and lawmakers. We also address laws and regulations, enforcement, emerging pitfalls, and best practices applicable to rewards programs. We open with a review of how rewards have been treated in the CFPB's reports on the credit card market since 2013, and the significance of and learnings from these reports. We then focus on complaints and federal regulators’ enforcement activity relating to rewards programs. Next, we turn to state law developments affecting rewards programs, including laws that specifically apply to rewards programs as well as contract, interchange, and UDAP / UDAAP laws. We then delve into other topics including the current focus on airline – credit card rewards programs by the Department of Transportation and the CFPB; the CFPB’s May 2024 report about credit card rewards; and important elements card issuers should keep in mind in the context of co-brand credit card rewards programs. We then conclude with a discussion on best practices to consider in mitigating risks and maximizing the benefits of rewards programs. Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates today’s episode, and is joined by Michael Guerrero and Joseph Schuster, Partners in the Group, and Kristen Larson, Of Counsel in the Group.